The recent global fall in commodity prices had a negative effect on numerous commodity-based economies around the world, none larger than China. The world’s largest economy suffered its lowest GDP growth in over 10 years in 2016 dipping below 7% to a fairly modest 6.7%. As one of Angola’s largest export partners this reduced China’s propensity to import Angola’s oil and other commodities.
According to a Commodity Markets Outlook released by the World Bank most commodity prices continued to rise in the third quarter from their lows in early 2016. Crude oil prices are forecast to rise to USD 55 per barrel in 2017 from an average of USD 43 per barrel in 2016 amid the impending possibility of OPEC limiting output in a bid to drive prices higher. This should grant Angola temporary reprieve from falling oil export revenues and have a positive effect on the nation’s 2017 GDP growth figures.
OPEC’s recent announcement to limit output by examining earlier commodity agreements and assessing the implications of changing market forces continues to be its key strategy in influencing the price of Brent crude. The World Bank anticipates these commodity agreements have limited scope to influence global oil prices in the medium to long-term and predicts prices may eventually collapse, often with unintended consequences. OPEC’s strategy will be tested in the next few years, in the presence of unconventional oil suppliers, notably the United States’ shale oil industry.
Metal prices on the other hand are projected to rise more sharply in 2017 than forecasted in mid-2016, as a result of faster-than-expected mine closures being predicted across the world, providing additional stimulus to the Angolan economy.
The global commodity cycle is highly volatile and cyclical. Any country that is heavily reliant on commodities for export revenues faces the inherent possibility of a flourishing economy during a boom and conversely lower GDP figures when the commodity bubble ends, as was the case in 2016. The IMF reported in 2016 that over the last 10 years oil exports accounted for a mammoth average of 97% of Angola’s exports to the rest of the world. At the peak of the commodity cycle in 2014 oil exports brought in USD 60.2 billion into Angola in foreign exchange revenues. In 2015 the situation changed drastically, foreign exchange inflows generated through oil exports plunging by a substantial 44.5% to USD 33.4 billion.
The IMF further reported Angola’s GDP grew by 3.0% in 2016 and forecasts from economic data suggest that the trend is likely to continue in 2017, albeit gradually, peaking at 3.2% in Q4. Structurally, the Angolan economy is excessively reliant on its rich mineral wealth and oil reserves, placing the country’s economy in a precarious situation when commodity boom cycles plummet. Although GDP is following an upward trend, Angola still faces structural economic issues such as diversifying its economy, shifting its reliance on precious metals and oil production for export revenues by expanding other sectors of its economy.
Nonetheless, there’s evidence which suggests that the country’s low growth cycle may not be mitigated by foreign investment in the short-run. Despite global uncertainties heightened by Brexit and the election of Donald Trump as the next president of the US, the global economic environment remains largely uncertain and this unpredictability may prompt international investors to trade portfolio and investment flows in emerging markets for supposedly ‘safer’, more stable markets in developed regions such as the US, UK and Europe.
As is the case throughout Africa, lack of infrastructure development continues to stifle growth throughout the region, the SADC is no different. Growth in the Angolan non-oil economy stalled in 2015 on account of delays in the execution of key electricity and industrial investments. The lack of infrastructural development impedes the efficient flow of goods and services across multiple jurisdictions by increasing the relative prices of goods due to higher input costs (transportation) associated with a deficient infrastructural system.
OPEC predicts Angola’s non-oil growth to reach an estimated 1.3%, a 2.5% growth in the energy sector, 3.5% in construction, 3.2% growth in diamonds and 0.2% in the agricultural sector in 2017. Although, the figures are generally positive in non-oil sectors the growth comes from a low base. The key to unlocking Angola’s growth potential lies in an aggressive expansion of these sectors in the medium to long-term.
South Africa’s government is actively pursuing diversification in its national energy mix in order to support and stimulate industrial demand after electricity shortages and the commodity disrupted economic growth in recent years. This creates opportunities for SADC countries such as Angola to engage with South Africa to expand trade into industrial goods and non-commodity export. Nevertheless, Angola’s priorities should shift from a commodity export centred approach to a diversified economy, by stimulating its manufacturing, agricultural, real estate, financial services sectors. Of course, this can’t happen overnight and will take time. However, there’s never a better a time than the present to make coherent policy and investment adjustments to achieve sustainable economic growth over the long term.